Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 1 of 43
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`
`
`MARIAM DAVITASHVILI, ADAM BEN-
`SIMON, MIA SAPIENZA, PHILIP ELI-
`ADES, JONATHAN SWABY, JOHN BOISI,
`NATHAN OBEY, and MALIK DREWEY,
`individually and on behalf of all others simi-
`larly situated,
`
`
`Plaintiffs,
`
`
`v.
`
`GRUBHUB INC., UBER TECHNOLOGIES,
`INC., and POSTMATES INC.,
`
`
`Civ. No. 1:20-cv-03000-LAK
`
`
`
`
`
`
`
`Defendants.
`
`
`
`
`PLAINTIFFS’ MEMORANDUM OF LAW
`IN OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 2 of 43
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`TABLE OF CONTENTS
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`TABLE OF AUTHORITIES ......................................................................................................... iii
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`INTRODUCTION .......................................................................................................................... 1
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`FACTUAL BACKGROUND ......................................................................................................... 3
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`I.
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`THE RELEVANT MARKETS .............................................................................................. 3
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`II. DEFENDANTS’ ANTICOMPETITIVE CONDUCT .......................................................... 4
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`A. Defendants Impose Supracompetitive Pricing in the Relevant Markets. ..................... 4
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`B. Defendants Maintain and Cause Supracompetitive Pricing in the Relevant
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`Markets Through Vertical Agreements That Fix Uniform and Minimum Prices. ....... 6
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`C. Grubhub and Uber Further Fix Prices and Preclude Competition in the Relevant
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`Markets Through Their Particular Vertical Agreements. ............................................. 7
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`ARGUMENT .................................................................................................................................. 8
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`I.
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`PLAINTIFFS PLAUSIBLY ALLEGE THE RELEVANT MARKETS ............................... 8
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`A. Defendants’ Argument for the Scope of the Product Markets Necessarily
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`Fails Under the Controlling Precedent. ......................................................................... 8
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`B. Plaintiffs Plausibly Allege the Relevant Product Markets. ........................................... 9
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`1. Restaurant Platforms Offer Services That Restaurants Do Not Offer. .............. 10
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`2.
`
`3.
`
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`Low Cross-Elasticity Exists Between the Markets at Issue. .............................. 11
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`Plaintiffs Account for the Cellophane Fallacy in Making Their Allegations,
`Which Defendants Fail to Do in Their Motion. ................................................. 13
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`C. Plaintiffs Plausibly Allege the Relevant Geographic Markets. .................................. 14
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`II. PLAINTIFFS PLAUSIBLY ALLEGE AND MAY SEEK REDRESS FOR THEIR
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`INJURY IN THE DIRECT MARKETS .............................................................................. 16
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`A. The Direct Classes Have Suffered Injury Inextricably Intertwined with the
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`Injury That Defendants Sought to Inflict in the Restaurant Platform Market. ........... 16
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`B. Plaintiffs Allege Anticompetitive Effects in the Direct Markets Because the
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`NPCCs Cause Supracompetitive Pricing in Those Markets. ...................................... 19
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`III. PLAINTIFFS PLAUSIBLY ALLEGE ANTICOMPETITIVE EFFECTS IN THE
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`RESTAURANT PLATFORM MARKET ........................................................................... 24
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 3 of 43
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`A. Plaintiffs Plausibly Allege Anticompetitive Effects Directly. .................................... 24
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`1.
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`2.
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`Plaintiffs Plausibly Allege Increased Consumer Prices. .................................... 25
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`Plaintiffs Plausibly Allege Increased Restaurant Prices. ................................... 27
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`B. Plaintiffs Plausibly Allege Anticompetitive Effects Indirectly. ................................. 29
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`1.
`
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`2.
`
`3.
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`Plaintiffs Allege that Grubhub and Uber Have the Ability to Adversely
`Affect Competition in the Restaurant Platform Market. .................................... 29
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`Plaintiffs Allege Grubhub’s and Uber’s Market Shares. ................................... 30
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`Plaintiffs Allege Other Evidence of Grubhub’s and Uber’s Market Power. ..... 32
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`IV. PLAINTIFFS ADEQUATELY ALLEGE THEIR CLAIMS UNDER STATE LAW ....... 33
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`CONCLUSION ............................................................................................................................. 35
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`ii
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 4 of 43
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`
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`
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`TABLE OF AUTHORITIES
`
`
`
`Cases
`
`Alaska Elec. Pension Fund v. Bank of Am. Corp.,
`306 F. Supp. 3d 610 (S.D.N.Y. 2018) ...................................................................................... 10
`
`Allen v. Dairy Farmers of Am., Inc.,
`748 F. Supp. 2d 323 (D. Vt. 2010) ........................................................................................... 29
`
`Allen v. Dairy Mktg. Servs., LLC,
`2013 WL 6909953 (D. Vt. Dec. 31, 2013) ............................................................................... 12
`
`Apotex Corp. v. Hospira Healthcare India Private Ltd.,
`2020 WL 58247 (S.D.N.Y. Jan. 6, 2020) ................................................................................. 31
`
`Babyage.com, Inc. v. Toys R Us, Inc.,
`558 F. Supp. 2d 575 (E.D. Pa. 2008) .................................................................................. 21, 25
`
`Bell Atl. Corp. v. Twombly,
`550 U.S. 544 (2007) .................................................................................................................... 8
`
`Blue Shield of Virginia v. McCready,
`457 U.S. 465 (1982) ........................................................................................................ 3, 16, 18
`
`Bookhouse of Stuyvesant Plaza, Inc. v. Amazon.com, Inc.,
`985 F. Supp. 2d 612 (S.D.N.Y. 2012) ................................................................................ 10, 31
`
`Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc.,
`996 F.2d 537 (2d Cir. 1993)...................................................................................................... 19
`
`Caruso Mgmt. Co. v. Int’l Council of Shopping Ctrs.,
`403 F. Supp. 3d 191 (S.D.N.Y. 2019) ...................................................................................... 19
`
`Commercial Data Servers, Inc. v. IBM,
`262 F. Supp. 2d 50 (S.D.N.Y. 2003) ........................................................................................ 31
`
`Copperweld Corp. v. Independence Tube Corp.,
`467 U.S. 752 (1984) .................................................................................................................. 31
`
`Darush v. Revision LP,
`2013 WL 1749539 (C.D. Cal. Apr. 10, 2013) .......................................................................... 33
`
`Dennis v. JPMorgan Chase & Co.,
`343 F. Supp. 3d 122 (S.D.N.Y. 2018) ...................................................................................... 19
`
`Discovery Fin. Servs., Inc. v. Visa U.S.A., Inc.,
`2005 WL 8178488 (S.D.N.Y. Nov. 10, 2005) .......................................................................... 10
`
`
`
`iii
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 5 of 43
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`
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`
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`
`
`DSM Desotech Inc. v. 3D Sys. Corp.,
`2009 WL 174989 (N.D. Ill. Jan. 26, 2009) ............................................................................... 30
`
`Eastman Kodak Co. v. Image Tech. Servs., Inc.,
`504 U.S. 451 (1992) ........................................................................................................ 8, 12, 31
`
`F&M Schaefer Corp. v. C. Schmidt & Sons, Inc.,
`597 F.2d 814 (2d Cir. 1979)...................................................................................................... 25
`
`FTC v. AbbVie Inc.,
`976 F.3d 327 (3d Cir. 2020)...................................................................................................... 19
`
`FTC v. Indiana Fed’n of Dentists,
`476 U.S. 447 (1986) .................................................................................................................. 29
`
`Geneva Pharm. Tech. Corp. v. Barr Labs. Inc.,
`386 F.3d 485 (2d Cir. 2004)...................................................................................................... 13
`
`Gordon v. Amadeus IT Grp., S.A.,
`194 F. Supp. 3d 236 (S.D.N.Y. 2016) ...................................................................................... 22
`
`Hanover 3201 Realty, LLC v. Vill. Supermarkets, Inc.,
`806 F.3d 162 (3d Cir. 2015)...................................................................................................... 18
`
`Heerwagen v. Clear Channel Commc’ns,
`435 F.3d 219 (2d Cir. 2006)................................................................................................ 14, 15
`
`In re Aggrenox Antitrust Litig.,
`199 F. Supp. 3d 662 (D. Conn. 2016) ................................................................................. 13, 32
`
`In re Aluminum Warehousing Antitrust Litig.,
`833 F.3d 151 (2d Cir. 2016)................................................................................................ 16, 18
`
`In re Commodity Exch., Inc.,
`213 F. Supp. 3d 631 (S.D.N.Y. 2016) ...................................................................................... 27
`
`In re Crude Oil Commodity Futures Litig.,
`913 F. Supp. 2d 41 (S.D.N.Y. 2012) ........................................................................................ 11
`
`In re Disposable Contact Lens Antitrust Litig.,
`215 F. Supp. 3d 1272 (M.D. Fla. 2016) .................................................................................... 24
`
`In re Keurig Green Mountain Single-Serve Coffee Antitrust Litig.,
`383 F. Supp. 3d 187 (S.D.N.Y. 2019) ...................................................................................... 12
`
`In re London Silver Fixing Ltd., Antitrust Litig.,
`213 F. Supp. 3d 530 (S.D.N.Y. 2016) ........................................................................................ 9
`
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 6 of 43
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`
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`In re London Silver Fixing, Ltd. Antitrust Litig.,
`332 F. Supp. 3d 885 (S.D.N.Y. 2018) ...................................................................................... 27
`
`In re Nexium Antitrust Litig.,
`968 F. Supp. 2d 367 (D. Mass. 2013) ....................................................................................... 26
`
`In re Payment Card Interchange Fee & Merchant Discount Antitrust Litig.,
`562 F. Supp. 2d 392 (E.D.N.Y. 2008) ................................................................................ 31, 32
`
`In re Restasis Antitrust Litig.,
`335 F.R.D. 1 (E.D.N.Y. 2020) .................................................................................................. 23
`
`In re Zinc Antitrust Litig.,
`155 F. Supp. 3d 337 (S.D.N.Y. 2016) ................................................................................ 16, 18
`
`Langan v. Johnson & Johnson Consumer Cos., Inc.,
`897 F.3d 88 (2d Cir. 2018)........................................................................................................ 34
`
`Laumann v. NHL,
`907 F. Supp. 2d 465 (S.D.N.Y. 2012) ................................................................................ 19, 25
`
`Leegin Creative Leather Products v. PSKS,
`551 U.S. 877 (2007) ........................................................................................................... passim
`
`Mazda v. Carfax, Inc.,
`2016 WL 7231941 (S.D.N.Y. Dec. 9, 2016) ...................................................................... 23, 29
`
`Meredith Corp. v. SESAC LLC,
`1 F. Supp. 3d 180 (S.D.N.Y. 2014) .......................................................................................... 19
`
`Meyer v. Kalanick,
`174 F. Supp. 3d 817 (S.D.N.Y. 2016) ...................................................................................... 12
`
`NCAA v. Bd. of Regents of Univ. of Okla.,
`468 U.S. 85 (1984) .................................................................................................................... 32
`
`New York v. Deutsche Telekom AG,
`439 F. Supp. 3d 179 (S.D.N.Y. 2020) .................................................................... 12, 13, 14, 15
`
`O’Brien v. Leegin Creative Leather Prods., Inc.,
`277 P.3d 1062 (Kan. 2012) ....................................................................................................... 33
`
`Ohio v. Am. Express Co.,
`138 S. Ct. 2274 (2018) .................................................................................................... 2, 19, 28
`
`Prime Int’l Trading, Ltd. v. BP PLC,
`784 F. App’x 4 (2d Cir. 2019) .................................................................................................. 17
`
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`v
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 7 of 43
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`
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`
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`R.J. Reynolds Tobacco Co. v. Cigarettes Cheaper!,
`462 F.3d 690 (7th Cir. 2006) (Easterbrook, J.) ......................................................................... 30
`
`Rebel Oil Co., Inc. v. Atl. Richfield Co.,
`51 F.3d 1421 (9th Cir. 1995) .................................................................................................... 33
`
`SC Innovations, Inc. v. Uber Tech., Inc.,
`2020 WL 2097611 (N.D. Cal. May 1, 2020) ............................................................................ 32
`
`SC Innovations, Inc. v. Uber Techs., Inc.,
`434 F. Supp. 3d 782 (N.D. Cal. 2020) ...................................................................................... 12
`
`Sentry Data Health Sys., Inc. v. CVS Health,
`379 F. Supp. 3d 1320 (S.D. Fla. 2019) ......................................................................... 14, 15, 16
`
`Spinelli v. NFL,
`903 F.3d 185 (2d Cir. 2018)...................................................................................................... 18
`
`Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting, Ltd.,
`2006 WL 1766434 (D. Mass. June 28, 2016) ........................................................................... 26
`
`Stubhub, Inc. v. Golden State Warriors, LLC,
`2015 WL 6755594 (N.D. Cal. Nov. 5, 2015), .......................................................................... 10
`
`Texaco Inc. v. Dagher,
`547 U.S. 1 (2006) ........................................................................................................................ 9
`
`Todd v. Exxon Corp.,
`275 F.3d 191 (2d Cir. 2001)............................................................................................... passim
`
`Tops Mkts., Inc. v. Quality Mkts., Inc.,
`142 F.3d 90 (2d Cir. 1998).................................................................................................. 30, 32
`
`Toys R Us, Inc. v. FTC,
`221 F.3d 928 (7th Cir. 2000) .............................................................................................. 23, 26
`
`TSI Prods., Inc. v. Armor AII/STP Prods. Co.,
`2019 WL 4600310 (D. Conn. Sept. 23, 2019) .......................................................... 9, 10, 11, 24
`
`United States v. Am. Express Co.,
`838 F.3d 179 (2d Cir. 2016).................................................................................... 29, 30, 32, 33
`
`United States v. Apple, Inc.,
`791 F.3d 290 (2d Cir. 2015)...................................................................................................... 20
`
`United States v. Blue Cross Blue Shield of Mich.,
`809 F. Supp. 2d 665 (E.D. Mich. 2011) .................................................................................... 22
`
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 8 of 43
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`United States v. Charlotte-Mecklenburg Hosp. Auth.,
`248 F. Supp. 3d 720 (W.D.N.C. 2017) ..................................................................................... 33
`
`United States v. Eastman Kodak Co.,
`63 F.3d 95 (2d Cir. 1995).......................................................................................................... 13
`
`United States v. Grinnell Corp.,
`384 U.S. 563 (1966) ........................................................................................................ 8, 14, 15
`
`United States v. Marine Bancorporation, Inc.,
`418 U.S. 602 (1974) .................................................................................................................. 14
`
`United States v. Visa USA, Inc.,
`344 F.3d 229 (2d Cir. 2003)............................................................................................... passim
`
`US Airways, Inc. v. Sabre Holdings Corp.,
`105 F. Supp. 3d 265 (S.D.N.Y. 2015) ................................................................................ 21, 33
`
`US Airways, Inc. v. Sabre Holdings Corp.,
`938 F.3d 43 (2d Cir. 2019)................................................................................................. passim
`
`Wacker v. JP Morgan Chase & Co.,
`678 F. App’x 27 (2d Cir. 2017) .................................................................................................. 8
`
`Wellnx Life Sciences Inc. v. Iovate Health Sciences Research Inc.,
`516 F. Supp. 2d 270 (S.D.N.Y. 2007) ...................................................................................... 24
`
`Other Authorities
`
`4E Commercial Litigation in N.Y. State Courts § 124:22 (5th ed. Oct. 2020 update) .................. 33
`
`Andre Boik & Kenneth Corts, The Effects of Platform Most-Favored-Nation Clauses on
`Competition and Entry, 59 J. L. & Econ. 105 (2016) ............................................................... 28
`
`Jonathan B. Baker & Fiona Scott Morton, Antitrust Enforcement Against Platform MFNs,
`127 Yale L.J. 2176 (2018) ........................................................................................................ 25
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 9 of 43
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`Plaintiffs, Mariam Davitashvili, Adam Bensimon, Mia Sapienza, Philip Eliades, Jonathan
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`Swaby, John Boisi, Nathan Obey, and Malik Drewey, individually and on behalf of all others
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`similarly situated, respectfully submit this Memorandum of Law in opposition to Defendants’ mo-
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`tion to dismiss.
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`INTRODUCTION
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`
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`This action concerns the unlawful agreements that each Defendant uses to fix uniform and
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`minimum prices across the channels that the country’s restaurants use to sell their food. Defendants
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`operate “Restaurant Platforms,” online marketplaces that enable consumers to search for restau-
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`rants in a locality and order food for takeout or delivery from them. Seeking to reduce competition,
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`both from other Restaurant Platforms and from restaurants, Defendants have entered into contracts
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`with restaurants that preclude restaurants from offering lower prices through their direct sales
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`channels or through other Restaurant Platforms (like Doordash), with the purpose and effect of
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`fixing uniform and minimum prices across these channels.
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`Defendants’ use of these No Price Competition Clauses (“NPCCs”) to fix prices has caused
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`consumers in three product markets to suffer anticompetitive harm, primarily through higher
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`prices. Consumers in the “Restaurant Platform Market” pay higher prices, for example, because
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`absent the NPCCs, restaurants would offer lower prices through competing Restaurant Platforms
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`that impose lower commissions on restaurants, reflected in consumer prices. In both the “Direct
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`Takeout and Delivery Market” (in which consumers order meals directly from restaurants) and the
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`“Dine-in Market” (in which consumers order meals at restaurants for dine-in service), consumers
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`pay higher prices because, absent the NPCCs, restaurants would offer lower prices in these “Direct
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`Markets,” where they are not required to pay commissions to Restaurant Platforms. If the restau-
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`rants were free to offer consumers lower prices for direct orders, then restaurants would sell more
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`outside of Restaurant Platforms, and Defendants’ ability to impose supracompetitive commission
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 10 of 43
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`rates would decrease. Each Defendant thus utilizes the NPCCs as a “fulcrum” to reduce any com-
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`petition from restaurants.
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`In moving to dismiss Plaintiffs’ claims, Defendants ignore controlling law and improperly
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`disregard Plaintiffs’ allegations. Defendants’ arguments fail for three main reasons.
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`First, on a threshold issue that Defendants address only briefly and secondarily, Plaintiffs
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`plausibly allege the relevant markets. Restaurant Platforms are two-sided, and as the Supreme
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`Court has held: “Only other two-sided platforms can compete with a two-sided platform for trans-
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`actions.” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2287 (2018). Restaurant Platforms thus do not
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`compete with restaurants in the same market. At the same time, as is common between product
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`markets, Defendants would stand to lose some sales to restaurants if restaurants could lower their
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`prices—which the NPCCs preclude.
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`Second, in disputing the plausibility of the anticompetitive effects that Plaintiffs allege,
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`Defendants mischaracterize the NPCCs and thus fail to address the controlling precedent, under
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`which Plaintiffs’ claims are well-founded. The NPCCs are not “non-discrimination provisions”;
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`they are vertical price-fixing agreements between retailers (Defendants’ platforms) and manufac-
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`turers (restaurants). The NPCCs are the precise type of vertical restraint that concerns the Supreme
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`Court most, see Leegin Creative Leather Products v. PSKS, 551 U.S. 877 (2007), because they fix
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`uniform and minimum prices, a retailer (the platform) imposes them on manufacturers (the restau-
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`rants), manufacturers cannot economically avoid using the retailer, they prevent other retailers
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`from charging lower prices, and they bind a large share of manufacturers.
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`Third, in arguing that Plaintiffs’ claims based on harm in the Direct Markets must fail
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`because Defendants “do not compete” in these markets, Defendants fail even to address the con-
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`trolling precedent holding otherwise. Under Blue Shield of Virginia v. McCready, 457 U.S. 465
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`2
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 11 of 43
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`(1982), as the Second Circuit has recognized, a plaintiff may bring a claim based on anticompeti-
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`tive effects in one market that are “inextricably intertwined” with the anticompetitive effects the
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`defendant sought to inflict in a separate market in which the defendant competes. Plaintiffs allege
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`in detail how the Defendants have sought to use the NPCCs to reduce competition in the Restaurant
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`Platform Market and in doing so have caused anticompetitive effects and harmed consumers in the
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`Direct Markets. In addition, although Plaintiffs here plausibly allege such anticompetitive effects,
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`McCready holds that the plaintiff need not even show that the defendant succeeded in imposing
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`anticompetitive effects in the market in which it competes.
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`FACTUAL BACKGROUND
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`I.
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`THE RELEVANT MARKETS
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`Defendants operate Restaurant Platforms through which consumers may search for partic-
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`ipating restaurants in a locality and order food for takeout or delivery, through the platform, from
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`those restaurants. Amended Complaint (“AC”) ¶ 27. Restaurant Platforms compete for such trans-
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`actions in the Restaurant Platform Market. Id. ¶¶ 29, 46. The Restaurant Platforms compete locally
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`for listings from restaurants and orders from consumers. Id. ¶¶ 98–99. The “Local Markets” here
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`are New York, Chicago, Los Angeles, San Francisco, Miami, Phoenix, Dallas, Washington, D.C.,
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`Boston, Philadelphia, Houston, and Atlanta. Id. ¶ 99. As measured by sales to consumers, Grubhub
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`has 67% of the market in New York City and over 40% of the market in Boston and Philadelphia;
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`Uber has over 40% of the market in Miami and Atlanta; and Postmates has 37% of the market in
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`Los Angeles. Id. ¶ 34. The Restaurant Platforms also compete nationally. Id. ¶¶ 95–97. The na-
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`tional Restaurant Platform Market is highly concentrated: the largest four firms, including Defend-
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`ants, control 98% of the national Restaurant Platform Market. Id. ¶¶ 31–32.
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`In the Direct Takeout and Delivery Market, consumers order meals directly from restau-
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`rants for takeout or delivery; and in the Dine-in Market, consumers order meals at restaurants for
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`3
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 12 of 43
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`dine-in service. Id. ¶ 30. These Direct Markets are separate from the Restaurant Platform Market
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`because Restaurant Platforms offer services that restaurants do not, including functionality that
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`enables consumers to search for restaurants in their area, review restaurants, select restaurants
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`based on their preferences and other consumer reviews, and place orders through mobile apps and
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`websites. Id. ¶¶ 48–50. In addition, these platforms are especially popular with a distinct group of
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`consumers with distinct preferences—young professionals living in major cities. Id. ¶ 52. Industry
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`analysts and commentators identify the Restaurant Platform Market as a stand-alone market, char-
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`acterizing it as an oligopoly and calling for antitrust scrutiny. Id. ¶ 53.
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`II.
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`DEFENDANTS’ ANTICOMPETITIVE CONDUCT
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`A.
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`Defendants Impose Supracompetitive Pricing in the Relevant Markets.
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`With thin profit margins—typically between zero and 15%—restaurants need a significant
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`number of sales to cover their costs. Id. ¶ 75. Over the past decade, those sales have increasingly
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`come through Restaurant Platforms. Id. ¶¶ 2, 77. Restaurants have to work with these platforms,
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`especially Defendants’, which are each used by tens of millions of consumers, because refusing to
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`do so would foreclose a restaurant from a large segment of potential consumers. Id. ¶¶ 78–79, 104.
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`Indeed, because many consumers use only a single platform, restaurants typically sell through
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`multiple platforms to access a sufficient number of consumers. Id. ¶¶ 85–88, 126.
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`Defendants exploit their market power by imposing supracompetitive commissions on res-
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`taurants. Each time a consumer orders through a Restaurant Platform, that platform charges the
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`restaurant a commission (the “Restaurant Commission”), usually a percentage (the “Restaurant
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`Commission Rate”) of the total price of the order. Id. ¶ 41. With 80% of online delivery orders
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`now placed through Restaurant Platforms, “Defendants’ Restaurant Commission Rates today are
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`approximately 30%,” triple what they were in 2004 and almost double what they were in 2015. Id.
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`¶¶ 109, 112–13, 115, 118. These rates, which are (and are perceived as) “unreasonable,” id. ¶ 115,
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`4
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 13 of 43
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`vastly exceed those charged by Defendants’ smaller competitors like Foodetective, Slice, Fare,
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`Waitr, and Delivery.com, and enable Defendants to make profit margins as high as 80% per order.
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`Id. ¶¶ 110, 112–13, 120–21.
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`These exorbitant Restaurant Commission Rates dwarf restaurants’ profit margins, id. ¶¶
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`75, 142–43, forcing restaurants to increase the price that they charge on Defendants’ platforms
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`(the “Restaurant List Prices”), id. ¶¶ 142–44, 146. In 2019 alone, for example, 64% of restaurants
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`in New York raised or considered raising their prices to offset Grubhub’s fees. Id. ¶ 144. Restau-
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`rants throughout the country have similarly raised prices in response to Defendants’ rates. Id. ¶
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`145. On top of these inflated Restaurant List Prices, for some transactions, Defendants charge
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`commissions to consumers that are, as the New York Times has characterized them, “downright
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`egregious.” Id. ¶¶ 43–44, 116–17.
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`Consumers and restaurants cannot readily switch to alternatives. The Restaurant Platform
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`Market has high barriers to entry, because Restaurant Platforms exhibit indirect network effects,
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`“in that the value that they offer to one side of the platform is a function of the extent of the use of
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`the other side of the platform.” Id. ¶ 66. It is thus difficult and expensive for smaller platforms to
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`attract the additional restaurants or consumers needed to gain even a foothold in the market. Id. ¶¶
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`66–69, 105. At the same time, Defendants’ platforms are—as recognized by Yale Law Journal and
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`McKinsey—“sticky,” meaning that once a consumer becomes familiar with a particular platform,
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`he or she is resistant to switching to a competing service. Id. ¶¶ 87, 106–07. Accordingly, even a
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`Restaurant Platform offering better services, technology, and prices would face substantial barriers
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`to becoming a leading market participant and viable alternative for consumers and restaurants.
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 14 of 43
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`B.
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`Defendants Maintain and Cause Supracompetitive Pricing in the Relevant Mar-
`kets Through Vertical Agreements That Fix Uniform and Minimum Prices.
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`In order to protect their supracompetitive rates, Defendants restrict price competition by
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`imposing NPCCs in their contracts with restaurants. Under the NPCCs, each Defendant prohibits
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`any restaurant that sells through its platform from selling goods at a lower price directly to con-
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`sumers. Id. ¶¶ 55–61. The NPCCs thus artificially interfere with a restaurant’s incentive to offer
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`lower prices to such a consumer. By maintaining lower prices in the Direct Markets, restaurants
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`could divert some of their sales from the lower-margin Restaurant Platform Market to the higher-
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`margin Direct Markets. Id. ¶ 148. That is, although the Restaurant Platform Market and Direct
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`Markets are distinct, there is some cross-elasticity between them, such that some consumers would
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`switch in response to price changes. Id. ¶ 154. This cross-elasticity is higher than it otherwise
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`would be because Defendants are already charging supracompetitive prices. Id. The NPCCs have
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`the purpose and effect, however, of preventing restaurants from undercutting Defendants on price,
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`and therefore enable Defendants to continue charging supracompetitive rates, earning exorbitant
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`profit margins, without losing sales to the Direct Markets. Id. ¶ 148.
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`Consumers pay the price. Restaurants on Defendants’ platforms must increase their prices
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`on the platforms to offset Defendants’ Restaurant Commissions, and—by design—Defendants’
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`NPCCs force restaurants to charge those same inflated prices in the Direct Markets. Id. ¶ 147.
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`Absent the NPCCs, a restaurant that sells through Defendants’ platforms could increase its prices
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`on those platforms, while maintaining lower prices in the Direct Markets. Id. ¶¶ 142, 149. Or such
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`a restaurant could decrease its prices in the Direct Markets, to persuade consumers to purchase
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`directly from the restaurant. Id. ¶ 148. The NPCCs prohibit these results. Id. ¶¶ 147, 149. As a
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`consequence, consumers in the Direct Markets pay higher prices than they otherwise would.
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`6
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`Case 1:20-cv-03000-LAK Document 40 Filed 12/18/20 Page 15 of 43
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`These supracompetitive prices are market-wide. Approximately 77% of restaurants in the
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`United States that offer delivery do so through Grubhub, and more than a quarter do so through
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`Uber and Postmates. Id. ¶ 81. At least 50% of all restaurants in each Local Market sell through
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`Grubhub; the same is true in seven Local Markets for Uber, and in three Local Markets for Post-
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`mates. Id. ¶¶ 82–84. With the NPCCs binding such a high percentage of restaurants, they artifi-
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`cially inflate prices throughout the Direct Markets. Id. ¶¶ 157–62.
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`C.
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`Grubhub and Uber Further Fix Prices and Preclude Competition in the Relevant
`Markets Through Their Particular Vertical Agreements.
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`Grubhub and Uber go even further than Postmates and also prohibit restaurants that sell
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`through their platforms from charging lower prices anywhere, including on competing platforms.
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`Id. ¶¶ 59–61. The Restaurant List Price for a restaurant that sells through Grubhub or Uber is the
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`lowest price the restaurant is permitted to charge for its goods. Id. The implications of this artificial
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`restriction are significant because, as explained above, restaurants typically need to sell through
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`multiple platforms to generate sufficient revenue to cover their costs. Id. ¶ 126.
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`Grubhub and Uber’s NPCCs thus have the purpose and effect of fixing the end-prices that
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`consumers pay in the Restaurant Platform Ma